Buyer’s guide to discounted travel passes (November 2009)

Getting to work more cheaply is a valuable perk for cash-strapped employees, says Alison Coleman

In tough economic times, employees welcome benefits that deliver cash savings, such as discounted travel passes which enable them to make significant savings on the cost of travelling to work.

Under government legislation, employers can offer discounted bus travel free of income tax, as well as employer and employee national insurance (NI), provided the employer pays for it. It can therefore be offered via salary sacrifice whereby an employee gives up a portion of salary in exchange for the perk.

Schemes are available direct from transport companies such as FirstGroup and Arriva, as well as from third-party benefit providers. Chris Large, UK group sales director at FirstGroup, says: “The first step is to identify how many employees travel to work by bus. Using standard employee survey methods, it is easy to find out how many more would use the bus if a scheme was available.”

Paying for an annual bus pass via salary sacrifice saves an employee tax and NI on the amount sacrificed, typically between 31% and 41%. The employer, meanwhile, typically saves 12.8% on NI contributions.

Higher-rate taxpayers can save £184.50 on a £450-a-year bus pass, which is appreciated in times of few pay rises, while the employer will save £57.60 on NI at 12.8%.

Rise in take-up Third-party employee benefits providers that have negotiated with bus companies to offer similar schemes are also seeing a rise in take-up. P&MM launched its Greentravel2work scheme two years ago, and has seen it implemented by more than 80 organisations, with a combined total of 500,000 employees.

Richard Davies, head of employee benefits at P&MM, says: “Initial interest came from local authorities, but the private sector is catching up. There is an employer administration charge, typically 5% to 6% a month, but this still delivers a saving of 6.8%.

“Employers have to find ways to support their staff through these difficult financial times and fulfilling their social responsibilities, in this case reducing their carbon footprint. With the [potential] introduction of workplace car parking levies to consider, discounted travel does offer a solution.”

Some employers extend travel benefits to include discounted rail tickets, although these are not tax-efficient. The Trainline.com, recently launched an online booking system with links to corporate partner websites to allow employers to bulk-buy tickets for staff or offer interest-free travel loans.

Information services company Informa offers staff the latter option, which is currently taken up by about 300 of its 3,000 UK employees. Thomas Humphris, HR and UK reward director at Informa, says: “The employee applies for an annual season ticket, then Informa pays Trainline and deducts the relevant amount from the employee’s salary each month.

“This is popular with our London staff, and will become more so as people realise they can buy Oyster cards for travel on the London Underground in the same way.”

Key Facts:

What are discounted travel passes? Discounted travel passes are bus tickets and passes which attract tax and national insurance breaks, as well as rail passes offered by employers through bulk-buying or the provision of interest-free loans.

Where can employers get more information? A guide to travel plans and their tax and national insurance implications is available from HM Revenue and Customs at: www.hmrc.gov.uk/green-transport. See also employeebenefits.co.uk/benefits/tax.html

Who are the main providers in the market? Accor, Arriva, FirstGroup, Motivano, P&MM, Trainline.com.